Appeals Court Upholds Ruling on 24 Hour Fitness Employee Contracts

The United States Court of Appeals for the Fifth Circuit, Dallas, has upheld a ruling from a district court that stated that binding arbitration provisions in 24 Hour Fitness employee contracts are deceptive and do not bind employees.

The appeals court’s affirmation in the class-action case, John Carey vs. 24 Hour Fitness USA, was filed on Jan. 25.

Carey, a former 24 Hour sales representative, claimed that the San Ramon, CA-based company violated the Fair Labor Standards Act by “failing to adequately compensate him and other similarly situated employees for overtime work,” according to the complaint, adding that 24 Hour retained the right to amend the agreement outlined in the company’s employee handbook.

24 Hour wanted to force Carey to submit the dispute to arbitration, claiming its employee handbook declared such claims of overtime are subject to mandatory arbitration—under the Federal Arbitration Act—and that class actions could not be brought.

Under Texas law, an arbitration clause is illusory, or deceptive, if one party can “avoid its promise to arbitrate by amending the provision or terminating it altogether,” the appeals court noted.

“Although 24 Hour Fitness is correct that it is necessary for an employer seeking to change the terms of an employment contract to prove notice and acceptance of those changes, it does not follow that these two steps are sufficient to make a contract non-illusory,” Judge Edward C. Prado wrote on behalf of a three-judge panel.

Courthouse News Service reports that since Dec. 7, 2011, 24 Hour has sued at least 39 former employees in Dallas Federal Court, seeking to compel arbitration for overtime pay claims.